Elephants in the Room
Trump Should Cut Hezbollah’s Lifeline in the Americas
A crackdown is long overdue.
Almost halfway through his term, U.S. President Donald Trump’s administration has yet to launch a coordinated assault against Hezbollah’s terrorist finance networks in the Western Hemisphere, especially in the Tri-Border Area of Argentina, Brazil, and Paraguay, the Iran-backed terrorist group’s most active financial hub in the region. That may be about to change, though.
All three of the bordering countries have elected leaders who have forcefully denounced the scourge of transnational organized crime and pledged to enhance cooperation among themselves and with Washington. This past January, the Trump administration established the Hezbollah Financing and Narcoterrorism Team, an interagency task force focused on the threat. Now is the time for Washington and its re-energized partners to launch a coordinated assault against Hezbollah’s networks and its enablers, which could have serious repercussions for the group’s ability to fundraise at the very same time that its Iranian patron faces crushing pressure from the return of U.S. sanctions.
It has been more than a decade since the U.S. Department of the Treasury sanctioned a Hezbollah operative in the Tri-Border Area. In late 2017 and early 2018, though, the Trump administration appeared to signal it would revisit this issue.
In December 2017, a Politico investigation charged that President Barack Obama’s administration, in an effort to facilitate nuclear negotiations with Iran, had gone soft on Hezbollah in order to facilitate nuclear negotiations with Iran. Specifically, the investigation alleged that the Obama administration deliberately derailed Project Cassandra, an ambitious effort by the U.S. Drug Enforcement Administration to stop Hezbollah from trafficking narcotics into the United States and Europe. Days after the publication of the exposé, then-Attorney General Jeff Sessions ordered a review of Obama’s handling of Project Cassandra. On Jan. 11, Sessions announced the establishment of the Hezbollah Financing and Narcoterrorism Team.
Yet no concrete action against Latin American targets has followed. To be sure, Treasury did sanction the overseas networks linked to one of Hezbollah’s key Lebanese financiers, Adham Tabaja. So far this year, the Treasury has designated 31 individuals and entities, including four on the same day in November that the State Department put sanctions on Jawad Nasrallah, the son of Hezbollah’s leader, Hassan Nasrallah. However, Washington did not impose sanctions on any targets linked to Hezbollah’s Latin American operational hubs, in particular the Tri-Border Area.
In October, however, the administration began to signal an increased readiness for action. Sessions announced the formation of a Transnational Organized Crime Task Force that would confront Hezbollah and four other major organized crime threats. Trump also signed the Hezbollah International Financing Prevention Amendments Act of 2018 into law. And in an address at the American Enterprise Institute that month, Assistant Secretary of the Treasury for Terrorist Financing Marshall Billingslea noted that Hezbollah has “a very robust presence” in the Tri-Border Area. The terrorist group, he said, “has a deep and substantial footprint in the Western Hemisphere, and they use the cover of seemingly legitimate businesses” to conduct its illicit financial activities.
These steps suggest that 2019 could be the year when Hezbollah’s operations in the Americas begin to unravel.
Three factors likely explain the administration’s new emphasis. First, Hezbollah’s revenue stream from illicit networks in the Americas is significantly growing, both because Hezbollah’s financial needs have expanded and because U.S. sanctions are cutting into Iran’s disposable income, which previously funded the group. Second, Hezbollah funnels much of its Latin American proceeds from illicit activities through the U.S. financial system, threatening its integrity. Third, Argentina, Paraguay, and Brazil are readier than ever to work toward stamping out transnational crime in their midst. This convergence, aided by the election of new presidents in Argentina in 2015, Paraguay this April, and Brazil this October, has created a more constructive environment for joint action, especially after new Brazilian president Jair Bolsonaro takes office in January.
There are clear indications that this trio of presidents plans to follow through on prior pledges. In July, Argentina’s Financial Intelligence Unit, in cooperation with its U.S. counterpart, the Financial Crimes Enforcement Network, initiated an administrative assets freeze against 14 Lebanese nationals and Tri-Border Area residents whom it accused of using Argentina’s casinos to launder money and funnel it to Hezbollah. Additionally, Argentina’s Ministry of Justice and Human Rights has been developing a terrorist financing and proliferation financing national risk assessment, one of the first of its kind in the region.
Paraguay has followed suit. Shortly after its new president, Mario Abdo Benítez, took his oath on Aug. 15, Paraguayan prosecutor Irma Llano issued an arrest warrant for Assad Ahmad Barakat, a Hezbollah financier sanctioned by the United States in 2004, who is also part of the network the Argentines had targeted in July. Within days, Llano issued another warrant, this time for Sobhi Mahmoud Fayad, a second Hezbollah financier who has come under U.S. sanctions. In September, Brazilian police arrested Barakat on their side of the border, where he remains in detention while awaiting extradition to Paraguay.
Asunción is key to the success of international efforts, given that Hezbollah networks have centered their trade-based money laundering schemes mostly in the Tri-Border Area’s Paraguayan sector. The Abdo government appears determined to turn the screws on organized crime despite the reluctance of its predecessors to fight terrorist finance and money laundering. In fact, Abdo has made the fight against transnational organized crime a central theme of his presidency, mentioning it in his inaugural address and, more important, giving strong backing to state institutions to go after narcotrafficking networks. The results have been impressive: During the initial months of Abdo’s presidency, Paraguay’s counternarcotics operations have scored important successes, cocaine mules were repeatedly caught at the Asunción airport, and underworld figures linked to Brazilian cartels were apprehended.
Yet when it comes to fighting Hezbollah, old habits have interfered with Asunción’s progress. Paraguayan security officials prematurely leaked news of the arrest warrant against Fayad to the press while he was in Lebanon, guaranteeing he would elude detention. A senior Paraguayan intelligence official candidly conveyed to one of us that the arrest warrants would keep Barakat in jail only for a very short period and claimed they were designed more to create a positive political environment than to inflict a serious blow on Hezbollah’s networks.
Paraguayan officials also lack deep familiarity with Hezbollah and have repeatedly dismissed, in conversations with one of us, the notion that complex money laundering schemes in their country comprise anything more than basic tax evasion and financial fraud. Some of the officials who actually know the Lebanese community in the Tri-Border Area have allegedly extorted its members by leveling accusations of terrorism at those who refused to pay bribes. Prosecutors who worked on past Hezbollah cases may also be tainted by corruption, and those who are not face a steep learning curve when it comes to terrorist finance.
A significant change, of course, will naturally take time. Abdo has barely been in office for four months. Hezbollah’s regional networks are multiple, complex, and entangled with local power structures. Many senior local officials have amassed wealth and built networks of influence thanks to their interaction with Hezbollah financiers and their collusion with organized crime. Those who wish to pursue them have to contend with powerful countervailing forces within the system.
Recent media coverage illustrates the magnitude of the problem. Paraguay’s main daily newspaper, ABC Color, last month linked the “megalavado” (“mega-wash”) investigation—a $1.2 billion money laundering scheme, the largest in the country’s history—to Hezbollah. The paper also alleged that the case has little prospect of successful prosecution before Paraguay’s statute of limitation kicks in next year. According to ABC Color, $420 million, or about one-third of the money, was laundered through U.S. banks. If Paraguay does not issue indictments, the United States should.
In its 2017 International Narcotics Control Strategy Report, the U.S. Department of State flagged the “megalavado” case as a sign of Paraguay’s structural anti-money laundering deficiencies. The battle against Hezbollah’s terrorist finance cannot be won unless Paraguay strengthens its anti-money laundering and anti-terrorist finance regimes. That is precisely why the United States, along with the Paris-based Financial Action Task Force, needs to step up to the plate.
Next year, for the first time since 2009, Paraguay is scheduled for an evaluation by Financial Action Task Force, the world’s anti-money laundering standard-setting body. In 2009, the nongovernmental organization concluded that Paraguay had serious strategic deficiencies on this issue, noting that the government still fell short of criminalizing terrorist financing based on the Terrorist Financing Convention and had no satisfactory procedures in place to identify, freeze, and confiscate terrorist assets. Asunción’s failure to address these shortcomings led the Financial Action Task Force in February 2010 to include Paraguay in its public list of countries that represent a money laundering and terrorist financing risk. Paraguay subsequently developed an action plan closely monitored by the organization. Eventually, the country demonstrated significant progress in improving its finance regime and, in February 2012, exited the monitoring process.
However, the Financial Action Task Force issued revised international standards later in 2012 and a new evaluation methodology in 2013, which is much more action-oriented and demanding. While it continues to focus on ensuring that countries comply with its recommendations by passing relevant laws and regulations, the new methodology also emphasizes that countries must be able to demonstrate that they are implementing their finance regimes with concrete actions and results.
Financial Action Task Force assessments receive plenty of attention from the assessed country’s authorities, private sector, and even public opinion, because a negative outcome may inflict serious reputational damage, as well as a restriction of correspondent banking relationships that are crucial for interconnectivity among financial systems. That is why Paraguay should act fast. As it advances its agenda of legal and regulatory reforms to comply with the new Financial Action Task Force standards, it should also keep in mind that the NGO and the international community are interested above all in demonstrable and successful actions against terrorist financing and money laundering. For Paraguay, that means finally rolling back Hezbollah’s money laundering networks in the Tri-Border Area.
The operational measures that Paraguay adopts could have a greater impact if the government implements them together with the United States and Paraguay’s neighbors. The United States has more intelligence on terrorism and its financing than any other country. Additionally, the U.S. Treasury’s financial sanctions programs have a global reach that other sanctions lack. Thus, Paraguayan authorities could work with U.S., Argentine, and Brazilian authorities to identify individuals and entities linked to terrorism and terrorist financing in the Tri-Border Area—and then pursue joint sanctions asset freezes. Joint designations would send a strong message to the global financial system, and the freezing of assets related to the designated parties would be more comprehensive and effective.
Hezbollah’s revenue streams from Latin American money laundering hubs such as the Tri-Border Area are growing in significance as Iran’s contributions become less reliable under the weight of U.S. sanctions. A senior official of one of the three countries in question recently told one of us that Hezbollah’s laundering schemes could be responsible for moving approximately $600 million per year in the Tri-Border Area alone. The illicit economy of the area is worth even more. Hezbollah will not let these funds go without a fight.
Washington needs to step up to the challenge and ensure that its regional partners are fully on board. Cutting off Hezbollah’s financial lifeline has been a U.S. national security priority for decades, but action has been intermittent at best. Yet now, an unexpected alignment of priorities has put Washington on the same page as the Argentine, Brazilian, and Paraguayan governments. Now is the moment for them to launch an all-out offensive.
Emanuele Ottolenghi is a senior fellow at the Foundation for Defense of Democracies. Twitter: @eottolenghi